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Home Builder Loan Market…Not So Terrible?

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Whether it’s houses, land or lots for sale, too many in the real estate industry have seen deals fall apart because of the tight lending market over the past few years. Words to describe the lending market in recent years might include: “terrible”, “non-existent” or “impossible”…making a report of “neutral” something to celebrate.

The NAHB recently issued its “Survey on Acquisition, Development & Construction Financing” for the second quarter of 2012, which describes homebuilders’ and developers’ current experiences with the availability of loans for land acquisition, land development and home construction.

What can we glean from the survey?

  • Our key takeaway is that we may be seeing market stability in the availability of loans for homebuilders and developers. For the past few quarters most builders and developers say it has been neither “Better” nor “Worse”.
  • The lending market generally has gone from heightened tightening and negativity from 2006 to 2009, to decreasing negativity over the past few years. It is near the point of being neutral now.
  • This suggestion of stability and neutrality may be an additional signal of an overall housing market bottom, which could indicate that there are good things coming for the homebuilding industry.
  • In the near term we don’t expect to see dramatic increases in loan availability for builders and developers. It’s a different world out there today. Many lenders and regulators still are digging themselves out of the rubble of the downturn, so this will be a gradual process.
  • Fewer homebuilders and developers are putting new projects on hold to wait until the financing market improves. Over the past few years the percentage that were shelving new construction has dropped from an average of more than 70% to about 50% this past quarter (excluding multifamily construction).
  • Low appraisal values are reported as the most common reason customers can’t get loans for new homes. In a previous post, observed that issues with the appraisal system likely have been playing a part in hampering the recovery of the housing market.

The trend toward stabilization in the availability of loans, and the fact that half of the respondents still are putting deals on hold, reflects the lingering uncertainty in the housing industry and the economy. What it comes down to:  No one is overly optimistic or overly pessimistic, but frankly this is a vast improvement over the negativity of the past few years.

What are you seeing in your markets?

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